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Jakarta Post

Jokowi hints at raising budget deficit cap to aid Indonesia's COVID-19 fight

  • Marchio Irfan Gorbiano and Norman Harsono

    The Jakarta Post

Jakarta   /   Thu, March 26, 2020   /   08:05 am
Jokowi hints at raising budget deficit cap to aid Indonesia's COVID-19 fight President Joko "Jokowi" Widodo. (Antara/Sigid Kurniawan)

President Joko “Jokowi” Widodo has revealed that government officials and legislators are in talks to raise Indonesia’s budget deficit cap to enable the country to escalate its emergency response to the coronavirus pandemic.

Jokowi told reporters on Tuesday that the government and the House of Representatives had been discussing raising the cap over the past few days. He has even held virtual discussions with the Supreme Audit Agency (BPK).

“The point is we want to relax the state budget and have the political support for when we issue the government regulation in lieu of law [Perppu],” he said.

Read also: Expand deficit to 5%, cut taxes on rich in exchange for required COVID-19 donations: House

The House – and several economists – had previously urged the government to issue a Perppu that raised the budget deficit cap set in the 2020 state budget. The higher cap would enable the government to step-up development of healthcare systems, increase social fund disbursements and stimulate the economy in tackling the pandemic. The downside is that Indonesia might spend the next few years paying off a higher deficit.

The House’s budget committee (Banggar) chairman, Said Abdullah, said on Monday that the government should raise the ceiling from the current 3 percent of gross domestic product (GDP) to 5 percent.

“Almost every macroeconomic indicator has changed significantly due to the spread of the COVID-19 pandemic. The 2020 state budget, as the government’s fiscal instrument, will no doubt change as well,” he said after a teleconferenced meeting with Finance Minister Sri Mulyani Indrawati and Bank Indonesia (BI) Governor Perry Warjiyo.

Sri Mulyani had predicted that the state budget deficit might widen to between 2.2 and 2.5 percent of GDP this year, taking into account the large government stimulus packages to fuel the virus-worn economy.

Read also: ‘Desperate times, desperate measures’: Calls grow for flexible state budget amid virus

She also said the government would reallocate Rp 62.3 trillion (US$3.9 billion) of state spending from the 2020 budget to tackle COVID-19 in Southeast Asia’s largest economy.

The allocated sum is a significant increase from the previous estimate of Rp 27 trillion – on top of the Rp 120 trillion in stimulus packages – as the government prepares for worst-case scenarios including the possibility of zero percent economic growth, ministers said.